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 The Breker Trekker
Tom Anderson, VP of Marketing
Tom Anderson, VP of Marketing
Tom Anderson is vice president of Marketing for Breker Verification Systems. He previously served as Product Management Group Director for Advanced Verification Solutions at Cadence, Technical Marketing Director in the Verification Group at Synopsys and Vice President of Applications Engineering at … More »

What Does Semi Merger Mania Mean for EDA?

January 27th, 2016 by Tom Anderson, VP of Marketing

Some of the highest readership here at The Breker Trekker happens when we post articles about the state of the semiconductor industry or EDA industry. It’s been a while since we looked inward at our own industry, but we have had a series of very popular posts about the ongoing changes in the semiconductor market, including the “merger mania” of the last few years. Although not all closed, in 2015 alone there were several dozen offers totaling well over US$150B.

Since semiconductor vendors are the main customers for EDA, with their customers the remainder of our market, we track both industries very closely. In last week’s post, we looked what the ongoing merger and acquisition (M&A) activity means for Silicon Valley. Our friend Graham Bell at Real Intent added a comment wondering about the impact of this M&A on the EDA industry. Today’s post contains some of our thoughts on this matter.

First let’s note that the EDA industry is changing almost as rapidly as the chip world, with our own wave of M&A activity consolidating more of the market with the “Big 3″ vendors (Synopsys, Cadence, and Mentor). Speculation on what semiconductor consolidation would mean for EDA only a couple of years ago would have resulted in different conclusions than we will reach today. But we will try our best to hit a moving target with an arrow launched from a speeding car.

The most obvious result of semi merger mania is fewer customers for EDA. At first glance, this might be seen as a bad development. Big companies succeed partly due to economies of scale, and there is little doubt that they will negotiate better terms and deeper vendor discounts than their smaller competitors. This is one of the challenges with M&A for both chip and software suppliers; initially sales may drop after an acquisition due to broad license agreements already in place.

On the other hand, there are some advantages to a smaller customer list. Selling an EDA tool for tens or hundreds of thousands of dollars is quite a complicated process for each new customer. An initial evaluation, often in the context of a live project, is just the beginning. Once the technical decision to buy has been made, especially at a larger company, other groups get involved in the process:

  • Senior engineering management must sign off on the technical decision
  • Credit/Finance departments must evaluate and accept the vendor
  • Purchasing departments often get involved in the price negotiations
  • Legal departments must negotiate and sign off on license agreements
  • Corporate Marketing must decide whether to make the relationship public

This takes a lot of time for each new company. This is one reason why it is easier to propagate to an additional project and grow business at an existing customer than to sign up a new one. Another benefit is that current users are usually quite happy to be an internal reference even when they are unwilling or unable to provide a public “success story.” Having a customer acquired by a big company may actually reduce the time it takes to close business with the new corporate parent.

One major downside of M&A activity is layoffs. “Redundant” domains such as finance, sales, corporate marketing, and general administration are almost always affected. There is usually less impact on engineers and technical marketing staff who know and support the products being acquired, but layoffs in their ranks are also common. This can reduce the number of potential users in the acquiring company, clearly a concern for EDA vendors.

The most important question is the impact on new projects. When merging companies have overlapping product lines, a second level of “redundancy” comes into play. Canceling products both increases the number of technical staff affected and reduces the number of projects available for EDA vendors to target. Especially when combined with higher discounts, the initial impact of an acquisition can be quite severe, although easier propagation can lead to significant growth over time.

Even the layoff cloud sometimes has a silver living. Some “downsized” engineers may choose other career paths, but many stay in the industry, consulting and often starting new companies. Greater Ottawa is a good example. When once-mighty Nortel collapsed, many feared that the high-tech era for the region was over forever. But all those smart engineers had to go somewhere, and in recent years high-tech employment has surged as new design centers have been established.

Finally, there is Graham’s point that “While Moore’s law is slowing, the need for innovation has not.” Creative solutions from EDA vendors are needed now more than ever. Semi merger mania gives us all good reason for concern, but our industry is growing, and in the end the benefits of the ongoing changes may outweigh the downside. Whatever happens, we will be watching and blogging about it.

Tom A.

The truth is out there … sometimes it’s in a blog.

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